Explanation of Terms

Synthetic contract

As we have seen above, by using a strategy of “buying a forward contract”, we ensured the purchase of a house on date B at a price which was known in advance. The house was bought without having written a contract of any kind on the house with any third party.

The transaction we executed is known on the stock exchange as: buying by means of a “synthetic contract”. The term “synthetic contract” describes a situation where we carry out the transaction without operating directly vis a vis any second party. Going forward, each time we carry out a purchase by means of “buying a forward contract” we can say: “we bought a house using a synthetic contract”.


Forward transaction

A forward transaction is a transaction signed on date A and executed on date B.

On date B, the goods are delivered and payment is received.

The details of the transaction are set on date A.

Buying a synthetic contract is a forward transaction.

There are two additional methods of carrying out a forward transaction:

1.  Forward transaction.

2.  Future contract.

These tracks will be detailed later.